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Good news for European start-ups in Q3

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CIOL Bureau
New Update

Lucas van Grinsven



AMSTERDAM: Some 390 million euros in start-up money, up 27 percent from the second quarter, and 1.34 billion in expansion funds, a rise of 26 percent, were poured into young European companies in the third quarter, the European Private Equity and Venture Capital Association (EVCA) said. EVCA and its survey partners said it was too early to say if the upward trend would continue in the fourth quarter.



"The amount invested in start-up and expansion investments increased in the third quarter on the second, but times remain tough," said Keith Arundale, European Venture Capital Leader at PricewaterhouseCoopers which carried out the research.



The buy-out sector, which is a broad area where private investors take control of more mature companies active in anything from food to engineering, continued to boom as large companies are still eager to spin off non-core units.



Buy-out investments were 4.3 billion euros, up from 3.52 billion in the second quarter and 1.98 billion in the first. The alternative of floating companies on the stock market became even tougher. Only six companies went for an initial public offering (IPO), less than half the number from the second and first quarters.



There was also more money raised for future venture capital investments, an indication of increasing confidence in new companies. In the third quarter of 2002, a total of 3.5 billion euros of new funds were raised, representing a 72 percent increase on the 2.1 billion raised in the second quarter.



Good venture investment market


After two years of declining stock market valuations and huge write-downs of investments in half-baked Internet ideas, venture capitalists were now looking ahead again. "This is a very good investment market," said Roel Pieper, who runs Favonius Ventures in the Netherlands. "We've done software deals recently and we're almost on our own."



At the height of the Internet bubble investors fought to invest in start-up companies which drove up the valuations of these firms. Tim Draper, founder of influential U.S. venture firm Draper Fisher Jurvetson said at a recent technology conference in Seville, Spain, that "valuations have gone to less than $10 million from over $25 million."



High valuations and a red-hot technology industry meant that in the final quarter of 2000 some 3.2 billion euros was poured into Europe's tech start-ups, ten times more than tech and non-tech investments together in the third quarter this year.



"There's less money flowing to start-ups now compared with 2000 but that's partly because a company needs less money to be visible and get critical mass. There are no rivals with dozens of millions of euros, let alone hundreds of millions," said Jerome Mol, founder of European venture information group Tornado-Insider.com which tracks technology investments.



He said young companies now had much stronger management and cash flows and would seek new money only for expansion, not to fund day-to-day operations. "We're back to the culture of the mid-1990s, when an entrepreneur could only raise money if he didn't really need it but wanted it to expand his business," he added.



"Start-up companies out there are fewer but fitter. They are forced by the market to run their business better," he added.



© Reuters

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